HP seeks buyer for its Chinese networking business

Hewlett-Packard has begun sounding out private equity firms in China on their interest in buying H3C Technologies, its Hangzhou-based corporate networking unit.

The process is in the early stages and HP may sell only 51 percent of H3C, assuming a deal is reached at all, according to the Wall Street Journal. In a full sale, the business could be worth roughly US$5 billion.

In China, US providers of technology infrastructure, including HP and International Business Machines, have faced challenges in part because government agencies and sensitive industries like financial services increasingly turn to domestic vendors like Huawei Technologies, according to component suppliers working with both Huawei and its US competitors.

Traditional providers of corporate networking gear have also been buffeted by low-cost alternatives competitors are offering via the Internet. Earlier this month, IBM completed a deal to sell its x86 server business to Chinese computer maker Lenovo Group for US$2.1 billion.

“In China, all the foreign companies have had trouble in the last several years” in the market for computer servers, said Adalio Sanchez, who headed IBM’s x86 server business and will continue to lead the business under Lenovo, in a recent interview. “But now, under the Lenovo umbrella, we think we have the flexibility to become Chinese, to be more palatable to the China government and China customer base,” he said.

People familiar with the matter said that in order for a deal for H3C to win Chinese government approval, the buyer likely needs to be locally based.

H3C is a major supplier of corporate data networking gear in China. The unit, which HP inherited when it bought 3Com Corp. for US$2.7 billion in 2010, has 5,000 employees world-wide, according to its website.

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